Saldanha Bay, Mittal & Kumba agree on iron ore pricing.
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Saldanha Bay, Mittal & Kumba agree on iron ore pricing.

ArcelorMittal South Africa expected third-quarter earnings would decline from the second quarter as the company grappled with lower international steel prices, falling demand and higher input costs, chief executive Nonkululeko Nyembezi-Heita said yesterday.

ArcelorMittal SA, the local unit of the world’s biggest producer of steel, also announced that it would cancel a surcharge on steel products next month after reaching an interim supply and pricing agreement with Anglo American subsidiary Kumba Iron Ore for deliveries of iron ore.

The steel maker would charge a single all-in price, reflecting the higher cost of iron ore, rather than a separate surcharge, ArcelorMittal SA said in a statement.

ArcelorMittal SA and Kumba last week entered into an interim supply agreement that halted a spat that threatened to put about 4 000 people out of work and plunge the entire economy and the downstream steel industry, in particular, into chaos.

The companys customers have been informed that the surcharge will be dropped, Nyembezi-Heita said.

ArcelorMittal SA introduced the charge from the start of May after Kumba, which supplies two-thirds of its ore needs, cancelled a nine-year-old accord that guaranteed supply of the key steelmaking ingredient at a price 3 percent higher than production costs. The charge would have been reimbursed to customers if the steel maker was successful in its bid to stop Kumba cancelling the contract, it has said.

Negotiations over a final agreement between ArcelorMittal SA and Kumba could take anything between 18 months and two years.

In view of the interim agreement being settled, changes will now be effected to ArcelorMittal SAs commercial policy, which will result in a single all-in price being invoiced, reflecting the higher cost of iron ore rather than a separate charge, Nyembezi-Heita said.

Company spokesman Themba Hlengani denied that dropping the surcharge was a condition of the deal hammered out by Trade and Industry Minister Rob Davies.

Under the terms of the interim agreement ArcelorMittal SA would continue to buy the annual allocation of 6.25 million tons of iron ore from Kumba under standard payment terms. ArcelorMittal SA will pay $50 (R367) a ton for ore supplied to its export-focused mill at Saldanha Bay and $70 a ton for deliveries to its two inland mills.

Hlengani said the interim pricing had been agreed for 12 months and the firm expected the arbitration process with Kumba to continue through this period. Agreeing to the interim price does, however, allow us to continue producing steel, which is important in terms of South Africa’s beneficiation policies and the country’s infrastructural growth objectives, he said.

ArcelorMittal SA is 46.8 percent owned by Luxembourg-based ArcelorMittal, the worlds largest steel maker.

The parent company reported yesterday its fourth consecutive quarterly profit as higher metal prices and demand boosted sales, while ArcelorMittal SA posted a first-half profit of R1.78 billion compared with a year-earlier loss of R848 million. Its shares gained 2.1 percent to R86.30 yesterday.

The cash costs pertaining to steel sales for the first half of this year decreased by 15 percent compared with the same period last year.

This was driven largely by the lower cost of coking coal as well as the higher production volumes. Compared to the preceding six months, the cash cost decreased by 7 percent, said Nyembezi-Heita. Additional reporting by Bloomberg

TRANSNET Freight Rail said it was set to reopen South Africa’s main iron ore export line at 6pm last night, six days after it was blocked by an accident.

The 861km railway is a single line built to carry iron ore for export from mines near Sishen in the Northern Cape province to the port at Saldanha Bay in the Western Cape.

The line transported 45 million tons of the ore in its last financial year.

The line is used by Kumba Iron Ore and a unit of African Rainbow Minerals.

Source Bloomberg

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